All is well, Reliance Jio report assures RIL investors

NEW DELHI: Disclosures in the annual report of Reliance Jio Infocomm, the telecom arm of Reliance Industries, have been able to allay investors concerns over issues, such as break-even point and revenue potential.

The clarity on financials of Jio has propelled RIL's stock to a nine-year high, making it the most valued Indian company on the bourses. With estimates of its core refining and petrochemicals business captured in the current valuation, the upside for the stock hinges largely on the telecom valuation.

Jio's annual report of FY17 provides some degree of insight to the key performance indicators of the company. Advance from customers stood at Rs 1,947 crore, which means that minus service tax, the company revenue stood at Rs 1,330 crore.

According to Citi, the implied average revenue per user (ARPU) stood at Rs 263, if 50 million subscribers recharged at Rs 303 and remaining 22 million paid just one-time fees till March 2017. This indicates a healthy conversion ratio of 70% and allays investors' concern about subscribers' af fordability and willingness to pay.

Multinational broker CLSA forecasts Jio's ARPU at Rs 274 and Rs 286 for FY19 and FY20, respectively, while Citi is factoring-in a flat ARPU of Rs 259 between FY18 and FY21.Consequently , revenue potential is seen in the range of Rs 27,000-Rs 38,800 crore for FY19.

One critical detail from the annual report is about operating expenditure. It provides an indication of the breakeven point. As per the report, Jio has capitalised operating expenditure of Rs 14,500 crore in FY17.

According to a JPMorgan note, Jio's FY17 implied operating expenditure (opex) of Rs 11,840 crore (ex-interconnect) was substantially lower than those of market leader Bharti Airtel at Rs 27,600 crore and Idea Cellular's Rs 16,860 crore. The key difference is the sharply lower network opex, which stood at Rs 5,200 crore against Rs 10,690 crore for Idea and Rs 15,600 crore for Airtel, the note said.

Separately, RCom initiated contempt proceedings in the apex court against the Department of Telecommunications, blaming it for delaying a spectrum sale that would have enabled dues to be paid to Ericsson and lenders.